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Question

Difficulty: Very hardCustomer Account Types and Ownership Structures

A compliance officer at a member broker-dealer is conducting an operational review of rules governing customer account opening procedures and documentation. Which of the following statements regarding customer account ownership structures and trading authorizations are correct? Select all that apply.

  1. In a joint brokerage account (whether JTWROS or TIC), any individual tenant may independently execute trades, but granting third-party Power of Attorney (POA) requires signatures from all joint account owners.Answer
  2. B
    Upon the death of one tenant in a Tenants in Common (TIC) account, the deceased owner's fractional interest automatically transfers to the surviving tenants without entering probate.
  3. C
    Under the Uniform Transfers to Minors Act (UTMA), an account may be established with co-custodians provided both custodians are legal parents or guardians of the minor.
  4. To establish a corporate trading account, a broker-dealer must obtain a corporate resolution passed by the board of directors to verify which individuals are authorized to trade on behalf of the corporation.Answer

Answer

The correct statements are: (1) In a joint account, any tenant can place trade orders independently, but granting third-party Power of Attorney requires authorization from all joint owners; and (2) Establishing a corporate trading account requires a corporate resolution designating authorized traders.
In joint accounts, while any individual account owner has full trading authority, establishing third-party discretionary authority or Power of Attorney requires explicit written permission signed by all joint owners. For corporate accounts, member firms must receive a valid corporate resolution passed by the board of directors designating which individuals have trading authority over corporate assets.

Step-by-Step Solution

1
Evaluate joint account trading and power of attorney rules.
Confirm that while any single owner in a joint account (TIC or JTWROS) may issue trade instructions independently, third-party trading authority (POA) requires written authorization signed by all joint owners.
Protecting all account owners requires full written consent before introducing a third-party agent.
2
Analyze survivorship rights for Tenants in Common (TIC) accounts upon an owner's death.
Recognize that TIC accounts do NOT provide automatic right of survivorship; the deceased tenant's percentage share passes to their estate.
Automatic transfer to surviving tenants is a feature exclusive to Joint Tenants with Rights of Survivorship (JTWROS), whereas TIC shares pass to the estate.
3
Evaluate custodial account structure rules under UTMA/UGMA.
Determine that co-custodians are prohibited regardless of legal relationship.
UTMA and UGMA regulations limit each custodial account structure strictly to exactly one custodian and one minor beneficiary.
4
Review institutional/corporate account opening requirements.
Verify that a corporate resolution is necessary to open a corporate brokerage account.
The corporate resolution is a legal document created by the corporation's board of directors empowering specific officers or employees to enter orders and act on behalf of the business entity.

Key Concept

Account Ownership Structures, Authorization Limits, and Custodial Rules
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Topics

Customer Account Types and Ownership Structures